Citi Analyst: Auto-Related Companies Could Report Strong Earnings

With a strong quarter expected in the automotive sector, Citi advised clients Monday to pay close attention to margins and full-year financial outlooks.

The industry got a boost from rising North American vehicle production and relatively stable European production, along with reasonable commodity costs and currency exchange rates, points out analyst Itay Michaeli. However, auto companies were hurt by slower vehicles sales in China and South America, falling auto prices in Europe and ongoing concerns about the global economy, as well as high oil prices."

How those companies operated in both environments will separate the better performers and could point to how companies will fare in a more challenging environment.

"We've seen dispersion of performance driven mainly by individual margin performance," Michaeli wrote over the weekend.

"Valuations remain low with investors looking for signs of stability in Europe, margin progress in North America, improvement in light truck mix and cash deployment."

The analyst said that while several of those five companies will probably announce strong quarterly results, investors already expect them to and they will be less likely to boost their 2012 profit predictions.